The S&P 500 (SNPINDEX: ^GSPC) is cooling off after rip-roaring gains of over 20% in both 2023 and 2024.
The Nasdaq Composite (NASDAQINDEX: ^IXIC) is in a correction — which means it is down over 10% from a recent high, while the S&P 500 is down 5.9% year to date (YTD) at the time of this writing.
And yet, the healthcare sector, utilities, and consumer staples have all defied broader market movements by posting YTD gains.
Here’s why investors tend to flock to safer sectors during periods of market uncertainty, and three low-cost exchange-traded funds (ETFs) you can use to invest in each sector.
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1. Healthcare
Among the best performing sectors in 2025 has been Healthcare.
Not surprisingly, the Vanguard Health Care ETF (VHT 1.33%) has gained 4.5% this year. And with just a 0.09% expense ratio and a minimum investment of $1, it is an inexpensive way to dip your toes into the sector. (The other ETFs we’ll discuss later have identical expense ratios and minimum investment thresholds.)
The healthcare sector sold off toward the end of last year due to a pullback in the stock price of drugmaker Eli Lilly and because of a steep drawdown in health insurance company UnitedHealth Group, which lost 17% in December. So, the sector was particularly beaten down heading into this year.
Healthcare tends to be one of the safest sectors because demand for healthcare products and services isn’t as vulnerable to business cycle changes. Sectors like consumer discretionary and industrials depend more on economic growth.
However, the sector has gotten riskier due to the rise of Eli Lilly, which has increased severalfold over the last few years and now sports a market cap of $719 billion at the time of this writing. That makes Eli Lilly the highest-weighted component in the Vanguard Health Care ETF, with a 10.5% weighting. Eli Lilly’s gains have come mainly from its dominance in the weight loss drug market, which could be seen as more of a discretionary product than other drugs. So going forward, the healthcare sector could be a little less safe.
The Vanguard Health Care ETF has a yield of 1.4% and a price-to-earnings (P/E) ratio of 31.6 — which is roughly the same yield as the S&P 500, but a more expensive valuation.
2. Utilities
The Vanguard Utilities ETF (VPU 0.53%) yields 2.9% and has a P/E ratio of just 20.2, making it a far more attractive choice for investors looking for passive income and value.
Over 61% of the fund is in electric utilities, many of which are regulated. These companies work with government agencies to set prices. Operating costs and new projects can be capital intensive, so companies demand clear paths for future cash flows to justify infrastructure spending. Regulation helps provide that predictability, but it also reduces upside potential. So many utilities simply grow earnings at a slow and steady rate, passing along the bulk of profits to shareholders through dividends.
Utilities is arguably the sector most protected from tariffs, since they mostly deal with domestic power production and consumption. Although tariffs could increase materials costs. All told, the utility sector is about as safe as it gets in the stock market, but it also has arguably the lowest growth prospects of any sector — hence why it tends to trade at a discount to the S&P 500.
3. Consumer staples
Top holdings in the Vanguard Consumer Staples ETF (VDC 1.58%) include retailers like Costco Wholesale and Walmart, every-day use product makers like Procter & Gamble, and beverage companies like Coca-Cola and PepsiCo.
During a recession, people may delay a car or home purchase or take a less expensive vacation. But they are less likely to pull back on buying products like toothpaste. In fact, grocery shopping could go up as spending shifts away from restaurants to cooking at home.
The consumer staples sector tends to grow steadily over time due to population growth and global consumption. Costco and Walmart are heavily concentrated in North America, but companies like Coca-Cola sell more products outside North America.
The consumer staples sector was remarkably resilient even in the face of inflation because many companies can pass along higher costs to customers. If tariffs ramp up and stay around, these companies should have pretty strong pricing power.
Costco and Walmart made all-time highs last year, although both stocks have been pulling back in recent weeks, dragging down the broader sector. Costco just suffered its largest single-session sell-off in over three years. Still, the two stocks make up over a quarter of the Vanguard Consumer Staples ETF. It’s worth being aware of the influence these two companies have on the ETF’s performance before considering an investment in the fund.
The Vanguard Consumer Staples ETF has a yield of 2.1% and a P/E ratio of 24.8, giving it significantly higher passive income potential than the S&P 500 and close to the same valuation.
Using safe sectors to your advantage
Safe sectors can serve as key role players in a diversified portfolio by being less vulnerable to economic swings. Since these sectors can move contrary to the broader indexes, they can also ensure that a portfolio isn’t overly correlated.
For example, mega-cap growth stocks like Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla, have all been selling off despite differences in each business. Over-concentrating in similar companies can make your portfolio volatile. So, sprinkling in some safer dividend stocks or ETFs here and there can be a good idea.
However, it’s a mistake to trade in and out of sectors or overhaul your investment strategy just because the market is undergoing a sell-off.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, Tesla, and Walmart. The Motley Fool recommends UnitedHealth Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.